After the flood

Now that the clean-up has begun, Jenny Knight explains why you should check whether you are underinsured

THE flooding that devastated homes and businesses in parts of Southern England has alerted thousands of people to the dangers of being underinsured or, worse still, uninsured.

High water mark: in the average house, two feet of flood water will cause an estimated £11,500 of damage

The clean-up bill will run into hundreds of millions of pounds, and may raise the cost of insurance for all of us, with particularly high increases for houses near rivers or with a particular flood risk. The Association of British Insurers says that the industry will be able to absorb costs without huge rises in premiums. However, Jeffrey Salmon, managing director of Salmon Assessors, a loss assessor, predicts that premiums will go up by about 50 to 60 per cent over the next year.

He said: "I think the final bill for damage will amount to about £1.2 billion. The insurance industry is cynical, so they will recoup their losses and more.

"Places where flooding is more likely have already had their insurance premiums raised to unaffordable levels for some. But most people who are uninsured simply decided not to bother. They took a gamble and were wrong. No matter how expensive insurance is, it's far more expensive to be uninsured."

Mr Salmon also predicts that many flood victims will now have to endure arguments and negotiations with their insurers as they try to mitigate their loss by contesting claims. He said: "I see lots of the companies going into houses and seeing kitchen units which have warped, and saying: 'How do we know it wasn't like this before?'."

Emphasising that flood victims should be careful not to throw anything away, Mr Salmon added: "The natural reaction is to throw away mouldy old clothes, but don't. They should be bagged up and kept. If the insurance company fails to turn up, call them and say you'll throw the stuff away if they don't visit in the next thee days. Then take pictures of everything before you throw it away."

About one in four households - six million homes - are uninsured, either through carelessness or through lack of money. In the average house, two feet of water will cause an estimated £11,500 of damage.

Peter Staddon of the British Insurance Brokers Association is worried that people in flood areas may become uninsurable, especially those on low incomes. He said: "I see more trouble ahead. There seems to be a trend for more and more floods in unexpected areas. A lot of insurers will start to look at each risk on its merits and, if you have had a few floods nearby in recent years, they will either charge a bigger excess or exclude flood cover.

"I don't see a solution. We have serious problems relating to rising waters. If you don't have household cover or building insurance you probably won't have legal cover either, so your chances of suing if you think anyone is at fault, for example by building on a flood plain, will be slight."

Mr Staddon agrees that underinsurance is another sticking point. He said: "People merrily renew policies which may not have index-linking. You should be aware that, if you have bought a lot of new furnishings or electrical goods, your existing policy may not offer enough cover." However, this is not normally a problem with policies that charge according to the number of bedrooms in a house, as these normally err on the side of caution.

Flooding used to be seen as a remote risk except for people living close to a river, but now, according to the ABI, any part of the country is a potential flood area if subjected to exceptionally heavy rain, as happened in Kent and Sussex. In a recent report, the ABI warned that climate change was likely to put Britain, especially the South East, in danger of more floods. Property owners in flood-risk areas could face considerably larger premiums in future or even be refused insurance altogether, it said.

According to the Environment Agency, five million people live in flood-risk areas. This means that about 1.2 million properties, worth about £35 billion in total, are vulnerable. The areas at greatest risk are those close to the Thames and the Trent. In London, about 70,000 to 100,000 properties are thought to be at risk, plus another 139,000 in the Trent catchment area, which includes Birmingham, Derby, Leicester and Nottingham. Flash floods caused by thunderstorms in London would be a nightmare scenario for insurance companies because of the high value of properties and the inadequate drainage system.

To check whether you are underinsured, divide the total sum for which you are insured by the number of rooms in the house. Go through each room with a shopping catalogue and check the prices of new beds, sofas, carpets, toys, electrical goods and so on. Then add on redecoration costs per room.

A common misunderstanding is to think that if you have £30,000 of household contents cover in a three-bedroom house and the flood or fire damage is worth only £20,000, then you are fully covered. This is not so. If only two downstairs rooms are damaged, the insurance company is likely to limit the payout to between £10,000 and £15,000.

If you discover that you are overinsured, don't expect an insurance company to pay extra. However, while the cost of being overinsured is likely to be just a few extra pounds a month, the price of underinsurance could be more catastrophic, insurance brokers say.

Age Concern Insurance Services launched a contents insurance policy for the 71 per cent of older people dependent on state benefits for at least 50 per cent of their income, after discovering that the minimum £20,000 cover offered on most conventional policies was way above the value of many elderly people's possessions. The policy is open to over-55s, and will cover contents worth as little as £7,000 for £18 a year.